(Image via KCNA)
Available now to purchase at the Project Alpha page at the King's College London e-Store
Project Alpha is today releasing the second in a new series of reports - Alpha In Depth. Alpha In Depth reports are intended as comprehensive studies of issues of particular interest to policymakers. They will be available for purchase from Project Alpha.
The second Alpha In Depth report to be released, titled North Korea's Proliferation and Illicit Procurement Apparatus, is now available.
This 200+ page report characterises in forensic detail the complex architecture that North Korea uses to evade sanctions. It is the first publicly-available study to describe in depth every DPRK entity known or strongly suspected to be involved in Pyongyang’s UN-prohibited weapons selling, luxury goods smuggling, and WMD-related procurement and proliferation activity.
The report is aimed at counter-proliferation professionals, policy agencies and enforcement authorities who are seeking open source information and analysis that can help them better understand North Korea’s global sanctions-busting networks.
North Korea’s Proliferation and Illicit Procurement Apparatus contains:
The report is fully referenced with more than 800 footnotes citing authoritative sources, including UN Security Council, European Council and United States sanctions, as well as UN Panel of Experts reporting, DPRK commercial information and other materials.
To purchase this report, please visit the Project Alpha page at the King's College London e-Store.
18 August, 2015
Four companies and five individuals have been charged by the US Department of Justice for allegedly devising an international network that supplied the Iranian military and Iran’s nuclear programme with $24 million worth of controlled goods between 2010 and 2015. The case illustrates how such networks function at an international level and draws attention to some interesting factors regarding Iran’s illicit procurement capabilities and the evasion of controls in light of the recently agreed Joint Comprehensive Plan of Action (JCPOA). Several financial and technical aspects of the network’s alleged operations are taken into consideration in this regard. A current update on the status of the case is also provided.
The full Alpha case study can be downloaded at the link below.
Earlier today, Russia appears to have released the full text of the Joint Comprehensive Plan of Action between the P5+1 and Iran. It appears that Russia's Ministry of Foreign Affairs may have released the document prematurely, as the file is no longer available for download. Project Alpha has made the file available at the link below.
UPDATE: The EU has now released the full text of the JCPOA and its Annexes. They can be dowloaded here.
The transportation sector provides vital services for the furtherance of economic prosperity, and as a result, international peace and security. There is a real risk that the sector could be misused by proliferators in order to transfer sensitive commodities. In order to counter this risk and ensure that the business community is prevented from contributing to activities that could threaten international peace and security, the UN often relies on the imposition of so-called “targeted sanctions” (or “smart sanctions”) on designated individuals, entities or States, which the Security Council has reason to believe are involved in the proliferation of weapons of mass destruction, human rights abuses or terrorist activities that may threaten international security.
A few relevant considerations for industry involved in the maritime transportation sector are outlined below, alongside a short set of guidelines meant to aid such companies in establishing effective practices for compliance with sanctions.
A short breakdown of UN Sanctions
A. Sanctions related to goods and services require States to do one or both of the following:
While such controls are primarily aimed at the sellers or purchasers of the sanctioned goods, in some cases the Security Council specifically requires States to prevent the provision of “assistance” to any trade that is prohibited under the sanctions regime. “Assistance” is generally given an open ended meaning (often in terms of “financial or other assistance related to the supply, sale or transfer of the sanctioned good), and are thus relevant to freight forwarding firms, maritime transport firms and insurers.
B. Targeted financial sanctions (“asset freezes”) directed against designated persons and entities, require States to do both of the following:
• freeze the funds, other financial assets and economic resources which are on their territories at the date the measure is applied or at any time thereafter, that are owned or controlled by designated persons or entities, or by persons or entities acting on their behalf or at their direction, or by entities owned or controlled by them, including through illicit means;
• ensure that any funds, financial assets or economic resources are prevented from being made available by their nationals or by any persons or entities within their territories, to or for the benefit of these persons and entities.
Risks posed by non-compliance
They include but are not limited to: enforcement action by State authorities; the delay or diversion of vessels; interruption of the movement of licit goods on the same vessel or in the same container as the suspected illicit cargo; legal liability; adjacent costs; damage to reputation; and even physical danger to the vessel and crew when transporting hazardous goods.
How UN sanctions requirements can be met in practice
1. Freight forwarders and carriers
Freight forwarders and carriers must comply with the obligation not to assist with the sale, supply or transfer of a good to (or from) a country for which that good is banned under a sanctions regime. The issue for freight forwarders is the degree to which they can rely upon the client exporter (consignor) / importer (consignee) to have its own compliance arrangements in place. In order to do so, freight forwarders may look at compliance risk indicators (country of destination, the good itself) when facilitating trade with a country subject to sanctions.
Good practice compliance for freight forwarders means:
Knowing which goods are prohibited (or require authorisation) for supply to which country;
Obtaining sufficient information from the consignor in order to determine whether the consigned good is prohibited or restricted for the country to which it is consigned;
Asking clients to provide information on the control status of the goods that they are shipping and to confirm that any appropriate export licence has been granted (including asking for a licence reference number);
Obtaining a signed compliance statement from the customer;
Taking steps to ensure that consignors have appropriately declared the content of their packages;
Saving all relevant data stores for ex post facto “suspicious transaction” analysis.
2. 2. Financial service providers
Many of the same principles that apply to compliance by freight forwarders and carriers also apply to financial service providers. However, while freight forwarders can verify the accuracy of client-provided information through physical inspection of the goods themselves, financial service providers will often rely on other indicators, including whether the client’s instructions on the transfer of funds matches the client’s description of the destination of the goods.
Since insurers also have a role in helping set the risk landscape for business, they should:
Not issue policies where the activity is unlawful;
Not self-blind as to the nature of the activity being undertaken under the protection of the policy they provide;
Put in place processes to ensure that they detect any designation of an entity that they already insure;
Consider inclusion of a contractual clause to ensure that the sanctions status of a client and sanctions status of transaction can be taken into account from a contractual perspective.
3. 3. Port operators
Port operators are responsible for the loading and unloading of cargoes at a port. In relation to sanctions compliance, they have a responsibility to:
Ensure no assistance is provided to the supply or transfer of goods subject to sanctions;
Ensure no bunkering services are provided to vessels for which there are reasonable grounds to believe the vessel is carrying sanctioned cargo;
Consider taking the lead of Panama in adopting vessel tracking and sanctions checking solutions;
Consider whether vessels entering their jurisdiction have appropriate liability insurance.
Designated Persons or Entities
Entity screening systems that automatically screen parties to a business transaction against lists of designated persons and entities, and highlight matches or potential matches for closer examination are problematic in that they cannot overcome challenges arising out of technical faults (including the transliteration, misspelling and duplication of names, as well as the lack of bio-data. In the event of a positive screening match or any uncertainty, the business should make formal contact with the relevant competent authority in its jurisdiction.
The accuracy of documentation and full data elements from the shipper of the commodities is a critical factor in supporting the transportation company in making an informed decision as to whether a particular export may give rise to sanctions compliance issues and otherwise demonstrating prior due diligence. Companies will encounter four categories of transactions: those that are prohibited absolutely, those that are permitted, those that are ambiguous and those that are suspicious.
Client due diligence
Does the client have a sanctions compliance process?
Does the client deal with countries to which sanctions apply?
Is the client based in a country to which sanctions apply?
Information Collection and Sharing
When companies detect suspicious activities or transactions, they are encouraged to report this information to their national authorities.
Due diligence efforts to identify whether there is any indication that the vessel is involved in non-compliance include:
- Establishing whether the vessel has previous activity that indicates a risk of sanctions non-compliance;
- Ensuring that vessels or vessel owners and operators are not designated persons or entities;
- Ensuring that ships flagged or owned in countries with enabling environments for sanctions evasion do not carry prohibited cargoes;
- Checking not only vessel names, but also IMO numbers;
- Ensuring that ships of any flag calling at territories to which sanctions apply do not carry cargoes prohibited under sanctions.
|Certification and Accreditation Schemes||The World Customs Organisation’s “SAFE Framework” includes the Authorised Economic Operator (AEO), Customs-Trade Partnership Against Terrorism, Container Security Initiative and other schemes.|
|Unintended Consequences and Unmanaged Liabilities||There are a number of scenarios in which overly-sensitive risk appetites - can have unintended and negative consequences.|
|Audit Trails and Record-keeping||Companies should ensure that business partners are aware of the record keeping requirements and it is good practice to have these included in contractual agreements.|
Compliance Structures can mitigate sanctions compliance risks. They are known by many different names and may be referred to as Compliance Management Structure (CMS), Export Control Management Programmes (ECMP), Global Trade Compliance (GTC) and more. The key elements to create an effective compliance programme are:
• Management Commitment
• Compliance Organisation
• Policies & Procedures
• Communication & Training
• Contracts & Licences
• Documentation & Record Retention
• Security – including but not limited to; Restricted Party Screening, Criminal Background
Checks, Facility Security, Vehicle Security.
• Continuous Validation & Improvement
• Voluntary Self Disclosure (VSD)
These guidelines draw on the views of industry and regulators expressed at a symposium on “Managing Sanctions Risk in the Maritime Transportation Sector” in Singapore in September 2014, later discussed in a UN Security Council Report on Effective Practices for the Maritime Transport Sector, to which Project Alpha has contributed.
Image credit: Mashregh News
The framework agreement for a Joint Comprehensive Plan of Action (JCPoA) reached on 2 April 2015 between Iran and the E3+3 (China, France, Germany, Russia, UK, and US, also known as the P5+1), creates the basis for a solution to the Iran nuclear issue over the next 10-20 years. Among the key parameters outlined by the US State Department’s fact sheet on the JCPoA is the establishment of a dedicated procurement channel, through which any legitimate procurement for nuclear-related goods can take place. The scope and implementation of this measure, however, remain largely unresolved to date. Several key provisions must be considered when establishing mechanisms by which the procurement channel is being designed:
03 April, 2015
Following a week of negotiations, the P5+1 and Iran reached an agreement in Lausanne on 2 April. Details so far available are contained in a document circulated by the US State Department entitled “Parameters for a Joint Comprehensive Plan of Action regarding the Islamic Republic of Iran’s Nuclear Program”, or JCPoA.
25 November, 2014
The UK government is planning one of the biggest shake-ups of counter-terrorism legislation in a decade. Home Secretary Theresa May is planning to prohibit insurers from reimbursing ransoms paid out to terrorists – and that’s just the first of many planned new measures.
What is not clear though, is what the UK will do about individuals already named by Europe or the UN as involved in terrorism. It has been been suggested by at least one commentator, Conservative MP Stephen Barclay, that Whitehall should align its approach with the US, rather than Brussels and the UN.
The UK and the US both publish what are called sanctions designations. Thousands of individuals and companies are named on these lists if they are suspected of being involved in terrorism, arms trafficking, the proliferation of weapons of mass destruction, human rights abuses or other international crimes. Listed entities are subject to asset freezes, and sometimes travel bans and other restrictions.
But even though the US has long been the UK’s main ally and intelligence partner on counter-terrorism, the UK continues to take its lead from Europe and the UN when it compiles these lists. In fact, the UK’s sanctions lists for terrorists and WMD proliferators are not at all consistent with those of the US. This inconsistency is one of Barclay’s main grievances.
It’s a situation that warrants some explanation. The main reason the UK and US designation lists are different is that the UK has little or no say in who the US designates as a terrorist, WMD proliferator or human rights violator. EU and UN Security Council sanctions are built with British input at every stage. America’s designation measures, on the other hand, are unilateral. They are sometimes made in consultation with other governments, but most often not.
Partnering up with the US when compiling the lists is probably not even possible. Washington would be highly unlikely to invite another member into its already byzantine sanctions-making apparatus, even one with whom they have a special relationship.
Even if the UK sought to copy the US listings without trying to get involved in their formulation, the British courts – and EU legal eagles – would no doubt have something to say about it. Courts across the Atlantic have very different approaches to human rights and privacy so many of the people or companies listed in the US could not be published on UK lists.
Judges in London and on the continent are already applying intense pressure on sanctions designations made in Whitehall and Brussels. In 2010, for example, the UK Supreme Court overturned a decision to freeze the assets of five suspected supporters of terrorism, describing the move as “draconian”. And in Europe, several Iranian companies accused of being involved in Iran’s nuclear programme by the European Council successfully challenged their listings and won large pay-outs.
Cases are particularly vulnerable to scrutiny if they are based on secret intelligence. Courts have been understandably reluctant to accept assurances from governments that they have followed due process before imposing sanctions on suspects. And given that national authorities are reluctant to release the intelligence that frequently lies behind the decisions, sanctions often fall over.
There is also nothing stopping UK security services or border agencies from adding US-designated suspects of terrorism or proliferation to their red-flag or watch lists, which are not made public.
Similarly, businesses – be they banks, exporters or shippers – working in areas where they might encounter individuals or companies involved in terrorism or proliferation should be screening their customers against all national and multilateral sanctions designation lists, regardless of which authority has issued them.
Ultimately, Barclay’s concerns reflect a longstanding problem. The lists used by various governments over the world are inconsistent. Our global patchwork of sanctions is flawed and often inconvenient to collate and parse. But when the alternative is massive reform to the law and political wranglings on an international scale, it is perhaps better to leave well alone.
Nick Gillard works for Project Alpha, a King's College London initiative to counter illicit, proliferation-related trade. Project Alpha receives funding from the UK Department of Energy and Climate Change, MacArthur Foundation, and Carnegie Corporation of New York.
Ian J. Stewart works for Project Alpha, a King's College London initiative to counter illicit, proliferation-related trade. Project Alpha receives funding from the UK Department of Energy and Climate Change, MacArthur Foundation, and Carnegie Corporation of New York.
24 November, 2014
Nonproliferation goals are in danger of being undermined by online trade in proliferation-related goods. Project Alpha is pleased to be working with governments, international organisations and the private sector in addressing this problem of 'weapons of mass e-commerce'.
Our work in identifying potential proliferation channels on Internet-trading platforms and assisting e-commerce sites to manage their compliance obligations is ongoing.
In particular, we commend Alibaba for having removed several US- and EU-sanctioned entities from their website. This is a strong first step towards improving compliance and combatting proliferation.
Other Internet-trading platforms, particularly those based in China, have yet to follow Alibaba's lead in removing known proliferators from their sites. A review by Project Alpha found that at least 15 China-based e-commerce sites still host adverts belonging to serial proliferator Li Fang Wei (aka Karl Lee), despite his public designation as a supplier to Iran's missile programme.
For further information, see the following resources:
29 September, 2014
This paper was written by Project Alpha.
This paper considers how to strengthen United Nations Security Council sanctions which have been imposed on States that sponsor proliferation. Evidence contained in reports issued by two UN Sanctions Panels, on Iran and on the DPRK, shows that the majority of interdictions of goods and materials by Member States, in compliance with UN resolutions, do not involve items listed under UN sanctions. In the large majority of cases action has been taken by Member States on the basis of “catch-all” provisions. This suggests, first, that Iran and DPRK are developing their proliferation programmes in large part based on procurement of non-listed items, and second, that strengthening the impact of UN sanctions on State-sponsored proliferators requires strengthening the language of “catch-all” provisions.
Download the full Alpha paper at the link below.
A Chinese graphite factory owned by notorious missile proliferator Li Fangwei (Karl Lee) and sanctioned by the US Treasury is listed as a "Gold Supplier" on alibaba.com, Project Alpha has discovered.
On 29 April, the US designated the graphite factory - Sinotech (Dalian) Carbon & Graphite Manufacturing Corporation - as a front company in Li's China-based missile component sales network, which has sold more than $10 million worth of prohibited goods to Iran.
Alibaba has quickly removed other listings belonging to sanctioned entities when notified. An advert belonging to Machine Sazi Arak, an Iranian company sanctioned by the EU and US for its role in Iran's heavy water reactor programme, has apparently been taken down after being highlighted in the Financial Times' recent article on Alibaba's proliferation problem.
But the appearance on alibaba.com of Li Fangwei's graphite factory five months after the factory was publicly designated by the US highlights the need for alibaba to bolster its compliance processes. As Project Alpha has recommended, alibaba's first step should be to introduce proactive screening mechanisms to prevent sanctioned entities from listing on the company's various sites.
UPDATE: As of 9 October, Sinotech (Dalian) Carbon & Graphite Manufacturing Corporation remains on alibaba.com.
UPDATE: As of 4 November, Sinotech (Dalian) Carbon & Graphite Manufacturing Corporation is still listed on alibaba.com.
UPDATE: As of 12 November, Sinotech (Dalian) Carbon & Graphite Manufacturing Corporation is NO LONGER LISTED on alibaba.com.